Is it Risk or Uncertainty?

It is not a novelty that the stock market of the United States has been consumed. Both by volatility and by a downward current during the last months.

It could be very unpleasant that this inconvenience is for investors, it is good not to be in the business of financial means when events of this type occur. In case if he were involved in it, he would assume responsibility. Which would be to find someone to interview who could comment on the risks that have caused such large sales. As well as trying to reduce the sources that could tell if the decline in stock prices is a forecast of a recession. Or in any case, if the decrease in them will cause a recession.

At that time, investors had been feeling a slight discomfort due to the effects of the manipulation of the exchange rate by central banks in the era after the “Plaza of Agreement”. It should be noted that this was the first time that central banks agreed to manipulate exchange rates after decades of fixed exchange rates. Such an economic climate was relatively unfamiliar. Without exception, as it turned out for investors, economists and reporters.

Look back

It is important to note that during Reagan’s first term as president, world capital flowed strongly toward the US dollar. Therefore, it was destined for assets denominated in US dollars. While foreign capital flowed, it had an effect on the US dollar. Its value increased more expensive, as did the price of US exports to third parties.

It should be noted that for the United States, the consequences of the more expensive dollar brought with it a decrease in exports and a trade deficit. Somehow, Treasury Secretary James A. Baker secured the agreement of our G-5 allies and business partners to follow a plan to lower the dollar to compensate for the US trade deficit, at the expense of a reduction in its own commercial surpluses.

However, this was established as a benefit to the US economy. UU In spite of this, as was done in the new and unknown environment of the monetary intervention, it was too new for the investors of the stock market to assimilate it without perceiving it as a risk. A similar situation is taking place today, as investors have not easily embraced the efforts of the Trump administration to seek tariff reductions through trade wars as a benefit to the US economy.